Will Royal Dutch Shell Stock See a Recovery?

With shares of Royal Dutch Shell (NYSE:RDSA)trading around $64, is RDSA an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Royal Dutch Shell operates as an independent oil and gas company worldwide. The company explores and extracts crude oil, natural gas, and natural gas liquids. It also converts natural gas to liquids to provide fuel and other products, as well as engages in manufacturing, supplying, and shipping crude oil. The company holds interests in approximately 30 refineries, 1,500 storage tanks, and 150 distribution facilities.

Royal Dutch Shell reported earnings yesterday, posting a 60 percent drop in profit for the quarter. The company faced a $2 billion write-down on shale oil drilling ventures in North America, showing that Shell’s drilling efforts have come up much shorter than expected. The company’s earnings were also negatively affected by expensive exploration efforts, and disruptions to oil production in Nigeria. In addition, the company also recently appointed a new CEO, Ben van Beurden, after Peter Voser decided to leave the company.

T = Technicals on the Stock Chart are Weak

Royal Dutch Shell stock has not done very well in the last several years. The stock is now trading near lows for the year, and may need some time to recover. Analyzing the price trend and its strength can be done using key simple moving averages.

What are the key moving averages? They are the 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Royal Dutch Shell is trading below its key averages, which signals neutral to bearish price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Royal Dutch Shell options may help determine if investors are bullish, neutral, or bearish.

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Steep

Average

September Options

Steep

Average

As of today, there is average demand from call buyers or sellers, and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts, and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates, and what that means for Royal Dutch Shell’s stock.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. In addition, the last four quarterly earnings announcement reactions can help gauge investor sentiment on Royal Dutch Shell’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Royal Dutch Shell look like, and more importantly, how did the markets like these numbers?

Royal Dutch Shell has seen mixed earnings and mostly declining revenue figures over the last four quarters. From these numbers, the markets are not pleased with Royal Dutch Shell’s recent earnings announcement.

* As of this writing

P = Weak Relative Performance Versus Peers and Sector

How has Royal Dutch Shell stock done relative to its peers, Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), BP (NYSE:BP), and the overall sector?

Royal Dutch Shell

Exxon Mobil

Chevron

BP

Sector

Year-to-Date Return

-6.29%

6.74%

16.64%

0.43%

4.81%

Royal Dutch Shell has been a poor relative performer, year-to-date.

Conclusion

Royal Dutch Shell is focused on oil and gas exploration and distribution, with operations all around the world. The company recently reported earnings that are not sitting well with investors. The stock is now trading near lows for the year, and it may need some time to recover. Over the last four quarters, earnings have been mixed, while revenue figures have been declining. Relative to its peers and sector, Royal Dutch Shell has been a poor year-to-date performer. WAIT AND SEE what Royal Dutch Shell does this coming quarter.